Streaming video giant Netflix (NASDAQ: NFLX) met Wall Street’s revenue expectations in Q3 CY2024, with sales up 15% year on year to $9.82 billion. The company expects next quarter’s revenue to be around $10.13 billion, coming in 1% above analysts’ estimates. Its GAAP profit of $5.40 per share was 5.6% above analysts’ consensus estimates.

Is now the time to buy Netflix? Find out in our full research report.

Netflix (NFLX) Q3 CY2024 Highlights:

• Revenue: $9.82 billion vs analyst estimates of $9.77 billion (in line)

• EPS: $5.40 vs analyst estimates of $5.12 (5.6% beat)

• Revenue Guidance for Q4 CY2024 is $10.13 billion at the midpoint, above analyst estimates of $10.02 billion

• EPS (GAAP) guidance for Q4 CY2024 is $4.23 at the midpoint, beating analyst estimates by 7.6%

• Gross Margin (GAAP): 47.9%, up from 42.3% in the same quarter last year

• Free Cash Flow Margin: 22.3%, up from 12.7% in the previous quarter

• Global Streaming Paid Memberships: 282.7 million, up 35.57 million year on year

• Market Capitalization: $301.3 billion

Company Overview

Launched by Reed Hastings as a DVD mail rental company until its famous pivot to streaming in 2007, Netflix (NASDAQ: NFLX) is a pioneering streaming content platform.

Consumer Subscription

Consumers today expect goods and services to be hyper-personalized and on demand. Whether it be what music they listen to, what movie they watch, or even finding a date, online consumer businesses are expected to delight their customers with simple user interfaces that magically fulfill demand. Subscription models have further increased usage and stickiness of many online consumer services.

Sales Growth

A company’s long-term performance is an indicator of its overall business quality. While any business can experience short-term success, top-performing ones enjoy sustained growth for multiple years. Regrettably, Netflix’s sales grew at a mediocre 9.5% compounded annual growth rate over the last three years. This shows it couldn’t expand in any major way and is a tough starting point for our analysis.

This quarter, Netflix’s year-on-year revenue growth was 15%, and its $9.82 billion of revenue was in line with Wall Street’s estimates. Management is currently guiding for a 14.7% year-on-year increase next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 12.5% over the next 12 months, an acceleration versus the last three years. This projection is above the sector average and indicates the market believes its newer products and services will spur faster growth.

When a company has more cash than it knows what to do with, buying back its own shares can make a lot of sense–as long as the price is right. Luckily, we’ve found one, a low-priced stock that is gushing free cash flow AND buying back shares. Click here to claim your Special Free Report on a fallen angel growth story that is already recovering from a setback.

Users

User Growth

As a subscription-based app, Netflix generates revenue growth by expanding both its subscriber base and the amount each subscriber spends over time.

Over the last two years, Netflix’s users, a key performance metric for the company, increased by 10.9% annually to 282.7 million in the latest quarter. This growth rate is strong for a consumer internet business and indicates people love using its offerings.

In Q3, Netflix added 35.57 million users, leading to 14.4% year-on-year growth. The quarterly print was higher than its two-year result, suggesting its new initiatives are accelerating user growth.

Revenue Per User

Average revenue per user (ARPU) is a critical metric to track for consumer internet businesses like Netflix because it measures how much the average user spends. ARPU is also a key indicator of how valuable its users are (and can be over time).

Netflix’s ARPU fell over the last two years, averaging 1.4% annual declines. The decreasing monetization of its platform partly explains why it saw a big increase in users. If Netflix starts extracting more value from its ecosystem, it’s unclear whether user growth would be sustainable.

This quarter, Netflix’s ARPU clocked in at $34.75. It was flat year on year, worse than the change in its users.

Key Takeaways from Netflix’s Q3 Results

It was great to see Netflix increase its users this quarter, enabling it to beat analysts' revenue and EPS projections. Specifically, its closely-watched advertising membership tier grew users by 35% quarter on quarter.

Looking at guidance, we were glad Netflix lifted its full-year operating margin forecast to 27% (from 26%) while sharing a revenue outlook for next quarter that came in higher than Wall Street’s estimates. Zooming out, we think this was a great "beat-and-raise" quarter featuring. The stock traded up 3.4% to $710.74 immediately after reporting.

Big picture, is Netflix a buy here and now?What happened in the latest quarter matters, but not as much as longer-term business quality and valuation, when deciding whether to invest in this stock.We cover that in our actionable full research report which you can read here, it’s free.